Discount carriers check into O'Hare

Delta Express joins Spirit, National Airlines

August 04, 2001|By John Schmeltzer, Tribune staff reporter.

For the past decade, Midway Airport has been known as Chicago's hub for discount airlines.

Low-fare operators such as Southwest Airlines and American Trans Air were loath to offer service from O'Hare International Airport, where they almost certainly would face crushing competition from American and United Airlines, the industry's Goliaths.

And United and American were just as loath to offer service from Midway, where they would face the juggernaut of Southwest's and ATA's combined operations.

That's beginning to change, however. In the past 10 months, three discounters have edged their way onto the O'Hare turf as additional landing and takeoff positions have become available. Spirit Airlines launched service to Florida last fall, while National Airlines launched service to Las Vegas in May. In July, Delta Express, the discount arm of Delta Airlines, joined the fray.

"O'Hare is a legitimate airport and Delta Express is a legitimate major airline," said Tim Mapes, managing director of Delta Express, in explaining the airline's decision to launch service from O'Hare rather than Midway.

Indeed, the cautious entry of discounters into the O'Hare market could undercut complaints from O'Hare opponents that United and American operate a fortress hub there, killing competition.

Mapes said Delta's decision to launch service by its low-cost operation in early July was purely defensive. It now offers flights to Ft. Lauderdale and Orlando from O'Hare.

"We were finding in the Florida market that low-fare carriers were expanding their market share. We wanted to compete with a product with Delta-style service with a better cost position," Mapes said.

Florida is critical to Delta's financial health. At least 28 percent of the company's revenues "flow through Florida," he said, adding that the airline has a number of customers in the Chicago region.

"O'Hare is where our customers are," Mapes said.

And he expects that Delta's move hasn't gone unnoticed by American and United, which operate only a handful of flights to the two Florida cities.

"You can get a Chicago to Orlando fare of $60 on us. Sure United and American can sell that fare, but they can't do it profitably," he said.

Both United and American, at least so far, have matched Delta Express advance purchase fares since it began service.

Unlike National or Spirit, Delta Express had a ready-made home. Those two carriers had to set up their own ground-handling operations and agree to operate out of Terminal 5, which is mainly for international flights.

By comparison, Delta Express uses Delta gates in Terminal 3 and Delta employees to handle most of its operations. Another plus: Delta Express couldn't offer its discount fares without the cooperation of Delta's pilots, who agreed to accept less pay. That helped the airline combat Southwest's operations in Florida and along the East Coast.

Delta likely will go unchallenged for at least the next few years by other major carriers. Both United and American pilots have consistently refused to give the option to their airlines despite statistics showing that is where the largest growth is in the domestic market.

The opportunities for low-fare carriers have exploded in the past decade. Statistics from the Air Transportation Association show that low-cost/low-fare business is growing at a 15 percent-a-year clip. Business travel, upon which United, American and even Delta depend, has only been growing at 5 percent a year. This year it has collapsed while discounters have continued to operate strong balance sheets.

That disparity is expected to continue for at least another decade, according to the Federal Aviation Administration.